EBRD and Khan Bank introduce innovative value chain finance in Mongolia

By Svitlana  Pyrkalo
@pyrkalo

The European Bank for Reconstruction and Development (EBRD) and Khan Bank – one of the largest commercial banks in Mongolia – are teaming up to develop an innovative financial instrument for the Mongolian market under the rubric “value chain finance”, to improve access to finance for small businesses and to help strengthen value chains in the country.

While a major portion of the US$ 25 million loan will be dedicated to loans for the financing of micro, small and medium-sized enterprises (MSMEs), US$ 5 million will be invested in the development of value chain finance.

This kind of financial mechanism exists in other developing countries to support SMEs, especially in agriculture, but also in manufacturing in more developed countries.' The instrument allows smaller suppliers and distributors doing business with big corporations to obtain cheaper financing, thanks to credit enhancement support from the corporations.

During the signing ceremony in the capital Ulaanbaatar, the EBRD’s President, Sir Suma Chakrabarti, said: “We are proud to initiate this innovative product with one of our oldest partners in Mongolia – Khan Bank. One of the EBRD’s priorities in Mongolia is to help its economy benefit from the natural resource boom in a sustainable way. This new financing instrument is expected to help MSMEs in the agribusiness and retail sectors, as well as local suppliers to large mining companies.”

Norihiko Kato, the CEO of Khan Bank, said: “Together with the EBRD, we hope to improve access to finance for micro, small and medium-sized enterprises that work with large corporations as suppliers or distributors. Value chain financing will promote the linkage between suppliers and distributors, and the large corporates within a value chain, and this will ultimately make the whole chain more resilient. We are also pleased to be able to offer our MSME clients more financing thanks to the EBRD loan.”

The EBRD, which has invested more than US$ 1 billion dollars into various sectors of the Mongolian economy, has recently approved a new country strategy for Mongolia, which emphasises diversification and sustainable growth. Support for MSMEs will help to achieve these goals.